Page last updated at 11:56 GMT, Saturday, 30 January 2010

Davos 2010: IMF head urges global reform agreement

Dominique Strauss-Kahn
Mr Strauss-Kahn said governments should not pull spending too soon

The head of the International Monetary Fund has urged the US to join with other countries to reform banks.

"The question of co-ordinating the financial reform is key, and I'm afraid we're not going in that direction," Dominique Strauss-Kahn said.

His comments at the World Economic Forum in Davos come after US President Barack Obama proposed huge reforms to curb the size of banks.

Financial reform and so-called "banker bashing" has dominated Davos.

Mr Strauss-Kahn also said the only likely way there would be a "double-dip" recession - whereby economies fall back into negative growth - would be if countries pulled their stimulus spending too quickly.

Mr Obama's reform proposals - which need approval in Congress - might mean that some of the biggest banks have to be broken up.

They also include a proposed ban on retail banks using their own money in investments - known as proprietary trading.

This is a statistical recovery but still a human recession
Larry Summers

Many bankers at Davos have been opposed to such reforms, but there have been some signs of concessions.

"I'm advocating a European rescue and resolution fund for banks," Deutsche Bank chief Josef Ackermann told the Financial Times, so the costs of Lehman Brothers-style collapses are paid for "to a large degree" by the banks themselves.

In Davos, Mr Ackermann said the economic recovery was a fragile one and financial markets "are nervous again".

The US president's economic advisor Larry Summers, also in Davos, called the level of unemployment in the US "disturbing".

He suggested there had been a fundamental shift in the US economy. "At the moment just one in five men in the US between 25 and 54 aren't working" he said.

Mr Summers warned that assuming there was a reasonable recovery, that number could rise to one in seven. That compares to 95% employment in the 1950s, suggesting a "profound change" in the structure of the US economy.

"This is a statistical recovery but still a human recession," he said.

Asian growth

The Asian economies also continued to show their strength, regaining confidence after spending 2009 in growth while the major Western economies suffered their worst contractions since World War II.

"There's a marked difference in the mood in Asia and the mood, shall we say, in the developed world," said Montek Ahluwalia, the deputy chairman of the Indian Planning Commission.

Zhu Min, the Chinese deputy central bank chief, also pointed the finger at the US for the trillions of US government debt that China holds.

"The reason we have more reserves, that's because we have more savings," Mr Zhu said.

"The reason we have more savings is because there's less savings on the other side." So the savings are merely "displaced," he added.

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